Retailer-Led Marketplaces

Leading retailers have opened up their online storefronts to competitors by operating marketplaces for third-party sellers. We develop a model of entry and price competition at the product market level to analyze the competitive interactions arising within these retailer-led marketplaces. We show that the retailer benefits from the marketplace by mitigating his own capacity constraints and manages competition from third-party sellers through his control of the storefront: by setting the marketplace fee, by steering consumers, and by allocating his own capacity in response to the product supply choices of third-party sellers. We draw managerial implications and examine policy interventions. We find that regulation of marketplace fees has the strongest potential to increase welfare outcomes. Our model provides novel insights into the mechanisms at play in retailer-led marketplaces and explains their prominent role in online retail. This paper was accepted by Raphael Thomadsen, marketing. Funding: This work was supported by H2020 European Research Council [Grant FAPoD 101044072]; Fundación Carmen y Severo Ochoa [Grant CEX2019-000915-S]; Ministerio de Economía y Competitividad [Grant RYC-2016-20307]; BBVA Foundation grant within program “Ayudas Fundacion BBVA a Equipos de Investigacion Cientifica 2019.”